Who ever thought of making money out of their passion? Is it not the best financial scenario? Making money while you do something you truly enjoy. Most hobbies and passions require that you pay to enjoy them. If you can find a way where you can be paid to enjoy your hobbies, you have just found the Holy Grail! I’m not sure it’s true. A few weeks ago, I read a very interesting article about not turning your hobby into a money maker @ Retire By 40. Joe outlined a list of reasons why making money from your hobby isn’t as perfect as you may think.
A few years ago, I would have argued actively with him. I turned my blog into a business back in 2008. At that time, I saw the same thing as Joe: I can make money online. I can make money out of my hobby. Where I’m a bit different than him is that I started The Financial Blogger back in 2006 with this objective in mind: making money online.
When I start writing my blog, I knew I could make money from it. My friend (who became my partner in this adventure) was already making money from his website. He made enough to pay for his tuition fees and go on a 6 months foreign exchange student program. He never had a summer job, he was simply working online a few hours per week from his bedroom.
Then, I started to do some research and found John Chow. He had the first “make money blogging” blog I followed. When I was telling people in the Personal Finance Blog niche (we were less than 100 at that time) that I was in to make thousands of dollars per month, they all told me that I would be lucky if I could make $200 monthly! I decided to continue nonetheless as I knew that other people were making money.
This is why I started blogging: to make money. I wanted to share my financial knowledge as I thought that most people don’t get the right advice from financial advisors and journalists. The second goal was to improve my English writing skills. But behind all that, I knew I could make money from this business.
What happened is that the more I wrote, the more I wanted to write. I’ve always love writing and even thought of becoming a writer when I was a kid. When I realized that most writers are starving, I thought a career in the financial industry was a better idea .
Slowly but surely, my passion for blogging and this whole “new world” started to grow inside of me. At that time, I was thinking about my blog non-stop. I used to get ideas at any time of the day and night and sent myself emails to keep track of them all. I developed a passion for building a business online.
At that point, I had reached the perfect balance: doing something I truly enjoy while making money from it. Unfortunately, nothing is perfect…
I mentioned this on the blog already but 2012 was a crappy year for us. The combination of having a new (very demanding) job, not sleeping with our newborn, getting stuck under $10,000 of unexpected expenses plus getting kicked in the nuts by Google was a lot of downers in a very short time span.
My passion started to fade away and I temporarily lost the desire to work like a maniac on my blogs. I still liked the fact of having a company and running projects but it looked a lot like a job at one point. The obligation of writing weekly, the tracking of our income and expenses, the projection updates we are doing to make sure we are on track with our objectives… All that sounds a lot like a job vocabulary and not a hobby or a passion.
This was a rough period as I know I need this money in my budget. A good part of my overall income is derived from my online company now. It represents roughly 30% of my income; I just can’t let it go. But having a second job (on top of being a father of three!) seems just like a recipe for a burnout later on. It hurt to think that I needed to work on my company instead of wanting to.
I can describe myself as a very difficult individual when it comes to work. I’m a real beast of productivity and do not fear completing humongous tasks within a ridiculous timeframe. However, I must be happy to do so. If I don’t have fun doing what I do, I become mediocre. I didn’t have the flame burning inside throughout 2012. This is when I started to question myself.
I had to go back to the reasons why I was having so much fun with my business and pulled them back to the top of my priority list. I love managing my business and seeing growth. Results are definitely the most inspiring factors for me. This is why I started to concentrate on how I can bring results to the table.
Cutting the crap, do what I love was the first thing I changed. I decided to write only the stuff that I want to write about. Too bad for Google and too bad if you don’t like it, I’m going to please myself with this blog!
Being part of a Master Mind Group was a clever move. I now have a weekly meeting with motivated people that help me bring results to the table. This is a true motivator for me.
Having a meeting with my partner was another great idea. Each year, we meet-up over the weekend to work on our company. We had a great discussion about the future of our blogs and our involvement. This has boosted my motivation through the roof.
It is! I’m feeling free to do what I like and this is probably the most important thing when you have a business or a hobby; never feel that you are forced to do something. This is probably the beginning of the end if you keep on to this route.
Do you find it difficult running your blog now that you are making money out of it? Is it changing anything to your writing style?
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If you have been following this blog for a while, you know that I’m obsessed with productivity. I feel sick each time I see inefficiency. If you plan on doing something, take a few minutes to organize yourself and make sure your work will be 100% productive. I’ve highlighted my productivity techniques in the following 8 articles:
These are all great tricks but there is a common problem with all these articles; they all rely on YOU! I don’t know if you have noticed but YOU are quite limited when it comes down to productivity:
- You only have 24 hours in a day
- You automatically have to spend a few hours eating, sleeping and… well… working
- You get tired
- You have a life
For all these good reasons, you can’t be always be productive. If you are working on your sideline from time to time, you probably find it frustrating to fall behind on everything else all the time. I know the feeling; I’ve been through this pain.
I’m a man of priorities. While I truly enjoy making more money, I didn’t want to do it at the expense of my family. This is why I’ve decided to bump up my website cost structure and hire Virtual Assistants (VAs). After a while, my two VAs have literally become extensions of my brain. They know how I process information and about my way of thinking. They are now able to adopt my methodology and make things run the way I would.
I don’t even have to worry about anything as they do it as well as I would do. Sometimes, I read comments, articles or email answers done by my VAs and I truly feel that I wrote that! The best part is that I wasn’t even involved in the process and don’t even influence them!
Just to give you a few ideas what they could do, here’s a list of tasks I pay for:
- Edit, format, add pictures and publish articles
- Comments/read other blogs
- Reply to emails
- Manage marketing campaigns
- Pay writers, brokers
- Write articles, manage other writers
- Keyword research
- Find topics to write about
- Brainstorm for other sites
- Comment/improve eBooks I write
Each VA has their own skills and abilities. I dispatch tasks to be done weekly or monthly plus I send them emails from time to time for specific projects. This is why most of their work is known upfront and they don’t have to communicate with me to achieve their tasks. I do spot check once in a while to make sure everything is being done according to my standards.
Sometimes, I don’t need someone to work full time for me and I can’t ask my regular VAs to complete these tasks. Some tasks require more experience and background in a field my regular VAs are not familiar with. This is a list of things I have to find specific VAs for a one time task:
- Blog designs / templates
- Logo designs
- Coding / programming
- Edit previous posts
- eBook Covers
I’m sure that you get the idea by now of having someone work for you. If I can make $50 an hour out of a task, the point is simply to find someone who will charge me less than that to achieve it. The difference between the VA cost and the revenues from the task is kept in my pockets.
The other way around is also true. If I was to spend many hours to complete a task and not even end-up with a nice results at the end, the cost of paying someone to do it for me would equal to saving several hours of work. As time is worth money, you can save by outsourcing too.
In order to do such magical arbitrage, you need to deal with highly competent individuals. I picked my 2 main VAs from two different worlds:
Martin is a blogger and works online for a living. He actually authors a site called Start Freelancing Now . I’ve been working with Martin for so many years I don’t even remember how it all started . I appreciate his enthusiasm and willingness to work hard and get things done. If you pick a blogger to work for you, you will save a lot of time as you won’t have to train him/her too much. This is probably the biggest advantage: the blogger will be ready to work for you the next morning and provide you with great results.
V is my feminine version. She’s like me on many points and I truly appreciate working with her. She is also my sister-in-law which made the decision to employ her very touchy. My partner and I thought about it for a long time before we offered her a job. Today, we feel that it was one of the best decisions we have ever made. She is able to work part time and take care of her child and we have someone working on a steady basis on various projects. When you pick among your friends and family, you have the advantage of knowing the good and the bad points of the person. You know exactly what to expect but it’s also important to clearly set expectations. If you are not clear about what is expected, the situation could result in a very delicate issue.
Bloggers and friends are very good to use as “main VA”. Those VAs will do several tasks and work with you on a daily or weekly basis. Depending on the task, I use several sites as reference to find VAs:
For logos and designs, we usually use 99 Designs. For a very cheap price, you are able to get profession work done. What I like the most about it is the option of getting dozens of designs and pick among them to buy what you truly had in mind. Dealing with a single designer will limit your options and you won’t be able to go back and forth 20 times to improve logos. With 99 Designs, you can explain what you need and you have plenty of designers offering their drafts for free. Then, you pick one and start working with him.
I’ve had a hard time to find main VAs through oDesk and eLance. I’m not saying it’s not possible but I’m saying that I don’t have the experience to help you out with this. However, a good friend of mine does: Quinn from Cubicle Free is currently offering a free eBook about how to get your VA from those two sites.
However, I do use oDesk for several other tasks. When I need a programmer to code a few things on my site, this is definitely the perfect place to go to post your need. Within a few days, you are set with a profession that won’t charge you an arm and a leg to do the job. I’ve also used oDesk for specific writing contracts. Since you can find writers in any field, it’s easy to find what you are looking for with a great level of English.
I’m sure you have tons of questions about hiring a virtual assistant and I would like to hear them. I’m willing to share my experience on this topic but I’m just not sure where to start. So go for it! I’m all yours…
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Last week, Sam from Financial Samurai asked me about my cost structure. I’m known for spending a lot within my company and most readers think my cost structure is quite heavy. I can understand their point of view but I can also tell you that having a third kid last year made managing my schedule a little bit more complicated! We had to rely on our team to keep the company rolling and this is what happened. Here’s the most up to date expense breakdown:
The bulk of our expenses is related to VAs and writers. Since we own several blogs, it’s impossible for us to write for all of them. Over time, my partner and I concentrated on a few sites that we like and truly have a passion for it. Writing for TFB is never a pain; in fact, it’s more fun than it looks!
Several emails and advertising management are handled by my VAs. We also use them to write a few articles, publish and edit others. They truly save me a lot of time as I don’t have to look over their work on a weekly basis. I check a few tasks each month to make sure that we are on track and I leave the rest up to them to manage.
We recently cut back on our writer’s budget. The reason was simple: we wanted to make sure that each site was profitable. Each month, we track our revenues per site and include this data in an excel spreadsheet (another task done by my VA ). Then, it was easy for us to take the average revenue per site on a monthly basis taking the last 18 months as an average. Those who were too close to their cost structure got their number of posts diminished. Over time, we realized that most blogs don’t need 5 new articles weekly to drag traffic. It is sometimes too much to read for visitors anyways! We would rather write quality over quantity and will make the same revenues while spending less money.
Accounting and banking fees are both pains we have to live with. I hate compiling ins and outs so I send all my statements once a month to my accountant and everything is being handled by them. I would probably have to waste a good 3-4 hours per month on that. So I guess it’s worth it! Within the banking fees, we also have a life insurance payment.
About a year ago, we took a permanent life insurance of $250,000 on both my partner’s and my life. In our shareholder agreement, we included that upon death, the $250K would be payable to the other partner so he could buy the deceased’s share. This was a great way to ensure that our work was 1) preserved for the other partner and 2) that our wives would get a benefit from this company.
The number here seems very high. We don’t spend $1,000 in servers. But we both have internet access, phone and other utilities linked to this spending account. This is why we end-up paying so much in servers & utilities. This is a way for us to benefit from the fact that we have a company at the same time since we don’t draw any income or dividend from it. We also include our $150/month Aweber subscription in there. Since having newsletters is now part of our core business, it’s a small fee generating a lot of money. Plus, it makes us more independent from Google!
We have done some major restructuration with our servers in 2012 in order to optimize our speed and service along with our cost structure (you can read about our servers’ adventures here). Our servers + domain renewal costs range around $600 per month now. We still have some cleaning up to do that should result in another saving of $50/month. This should be done in the upcoming months.
So our total operating cost per month is now below $4,000. I believe we have a very strong structure since we can easily grow our business without spending much money. The only spending account that could increase would be writers but this would also mean that our revenues would expand at the same time.
We currently average $8,000 in gross income per month since the latest Google EMD update. So after two major hits in 2012, we are still in line to make slightly over the psychological bar of $100K per year. So where does all our exceeding money go? I’ll let you guess…
There is another important account in our budget: debt servicing! I mentioned last year that we are on an aggressive debt repayment plan. We used to be over $90K in debt and we are now down to $77K. We have restructured our debt to pay a smaller interest rate (we now pay 4%! Whoohoo!). Our goal is to pay off all our corporate debts within the next 24 to 30 months. Since the online economy is changing rapidly, we thought it would be a better idea to clean up our balance sheet while we are making money and stop leveraging for a while.
Borrowing to finance our growth was definitely the best strategy we used for a while. Now that it has become harder to growth (because of a lack of time doubled with internet uncertainty), we decided it was time to pay our debts back. In less than three years, we should have a company netting roughly $50,000 per year in profit. This is what I call free cash flow!
The beauty of all this is not the 100K in revenues and definitely not the 45K of operating costs! The beauty is to make 25K each of net profit with less than 40 hours of work per month. This means that my hourly wage when I work on my blog is around $48/hours. This is not an astronomical number but considering that I can derive benefits from the company in addition to the $48/hours (such has having free internet and not having to pay for any computers!), I think it’s truly worth it!
The decision we made was to work less and earn less. However, we wanted to see our company grow while we are working at our day jobs. This is mainly the reason why we have decided to keep our cost structure higher. The idea behind it is also to build a safety net. If I was to lose my job tomorrow morning, I could fire all my writers and VA’s (which would suck!) and start working 40 hours for my company and keep a decent living from the income. This would give me enough time to turn around and make my company grow even faster.
If we would have kept only a few sites and would do everything by ourselves, we would surely have a cost structure of less than $1,000/month and netting over $7,000 each month. But we would also work a lot more than 10 hours a week! I still prefer playing with my kids than blogging, hahaha!Google+ Comments: 15 Read More
Blog & Corporations; How You Can Double Your Income
If you haven’t already, you may be lagging right now; it’s tax season, so you better pack your T4’s & T5’s together and fill in your tax report Mine are already sent, but it’s not because I like to be on top of my things. It’s more because I’m expecting a nice check from my friends at the Government!
Speaking of my friends at the Revenue Agency, Ottawa Guy, a long time reader, just sent me a quick email last week and asked two simple questions: Why did you incorporate your business? What are the advantages compared to running your blog under your own name?
Almost exactly five years ago, my partner and I founded our corporation. Our goal was to be able to run a true online business and make it easy to manage and to split if we would eventually disagree. But behind the protection and the simplicity, there is a huge advantage of having a corporation, no matter how big your business is…
Note: I’m not a professional accountant and not providing accounting advice in this post. You must verify with a professional if your situation applies to having a corporation.
The major advantage of having a corporation is summarized in a single mathematic calculation:
Which one do you prefer; paying your expenses before paying your taxes or after paying them? I you are a little bit familiar with accounting you guessed that the first situation happens for corporation while the second situation is for poor mortals also called tax payers .
A corporation pays taxes only on their net profit only. This means that once the company receives its income, it can spend it all before paying any taxes. Then, once you have paid for all your expenses, you will pay a small tax rate on your net profit. All right, a small rate in Quebec is 19%… depending on which province or state you live in, this could be higher or smaller. Since my own marginal tax rate is near 50%, a 19% tax rate seems like the deal of the day for me!
Once you understand that you benefit from a tax advantage compared to regular employees, you need to find expenses that make sense. For example, I have a web company with no shipping services. How could I possibly have a car paid by the corporation? It’s pretty hard to justify it, right? And this is why my company is not paying for my RX-8 .
However, I need a computer, internet access, a smartphone and all other electronic devices that can help me work online and test my sites. The company can then pay for these expenses since they are vital for its business model.
If I get back to the tax advantages, I’ll give you a real example. Let’s say I pay $70 per month for my smartphone and I earn $100 this month. Here’s what happens if I pay for my phone as a tax payer or as a corporation. I’ve set a marginal tax rate of 40% for the tax payer and a 19% tax rate for the corporation.
So the tax payer pays $34.30 more in taxes and doesn’t have enough money left to pay for the smartphone (he is short by $10). The corporation ends-up paying $5.70 in taxes because they are calculated after paying for the smartphone. Therefore, for the same transaction, the Corporation pays 5.70% in taxes out of $100 earned. I know, I’m twisting numbers here but still, the example makes it obvious that a corporation definitely has a huge benefit compared to a tax payer.
You obviously cannot make-up expenses and abuse this rule. If not, everybody would create their own little corporation just to switch their household expenses into corporate expenses. However, there are several things your company will need in order to operate and they can be paid before paying taxes on the income.
Another way to reduce your income before paying taxes is to find losses. In our case, we can use currency losses depending on how the CAD vs USD evolves. Since we do not wish to trade currency to hedge our company, we sometimes suffer from a currency loss while exchanging USD for CAD. After all, most of our income is made in USD and most of our expenses are in CAD. This used to be a big advantage back in 2008 but it’s more an inconveniency right now .
I’m not sure if this concept exists in the United States but in Canada, you are allowed to reduce the value of an asset on your books. This has a double effect on your financial statement:
#1 it allows you to use this asset value reduction as an expense to reduce your profits (and pay less taxes)
#2 it also reduces the value of the assets on your books and therefore, will boost the capital gains to be paid upon disposition of the asset.
Here’s a quick example:
I bought a website at $10,000. Each year I can amortize the site value by 1/5 (this is an example; I’m not sure about the actual accounting rule). Therefore, I can reduce my profit by $2,000 annually according to the 1/5 amortization rule. If I sell the site after three years, the site will show on my books at a value of $4,000 (3 years * $2,000). While I saved taxes to be paid on $6,000 over the past three years, the taxable capital gain will be based on the price of the sale minus $4,000 and not the $10,000 I paid for. If I sell the site at $15,000, my taxable capital gain will be $15,000 – $4,000 = $9,000.
As you can see, you don’t avoid paying taxes; you simply postpone them to a later date. You can’t really avoid paying taxes, but being able to delay them for several years is definitely worth it!
Because companies create jobs and contribute greatly to the economy, their tax rate will always remain lower than that of individuals. If I hadn’t created a corporation, I would have still been able to own my blogs and make money out of them. The problem is that the benefits would have been added to my current income as a worker. Therefore, instead of paying 19%, I would have paid 49% on this income.
This means that for each $100 earned, I would lose a ridiculous $30 in taxes. This is a huge difference if you aad some zeros to the $100. Last year, we finished with over $40,000 in net profit. This means I would have paid an additional $12,000 in taxes as an individual compared to a corporation. Considering the accounting fees and incorporation costs, this year alone is enough to cover several years of fees!
I guess the final question is when should I incorporate my sideline? I think that if your sideline and day job combined together adds-up to over $50,000 per year, you should definitely consider incorporating your sideline. You will save a lot in taxes and keep the profits for yourself. This is why we didn’t wait to make money to create our corporation, we knew we were serious and we knew that we would generate over $50,000 in income per year.Google+ Comments: 19 Read More
I didn’t get my traffic back, but I now OWN my company
It took us five long months, but we have gone through our first crisis since the company existed. Since we created our company in 2008, we never looked back and always continued our growth at a very high speed. This was even more impressive since both my partner and I never really worked more than 10 hours a week each on our sites. Still, we were able to go from annual revenues of 18K to a low 6 figure company within 3 years. Since then, we never made under $100,000 of gross income. Not bad for a hobby!
But things went sour in 2012… very sour…
This is exactly the question I asked myself several times. I could have found several lame excuses such as….
#1 My partner had his first kid
#2 I had my third one!
#3 We were busy replacing 1 VA and working on our Dividend book
But the truth is harder than that:
#1 We didn’t work very hard on creating anything different
#2 We became complacent and looked at all the money that was coming in
#3 We knew our business model wasn’t sustainable and closed our eyes and kept hoping it will last
At the beginning of 2012, there was a huge Google PR slap. Several financial blogs saw their Page Ranks dropped to 0 and Google severely penalized private advertisements. We not only saw this part of our business melt away faster than a green army man in the microwave but we also got targeted by some jealous individuals who tried to harm our sites.
We did work on our business model and tried to make modifications but this wasn’t enough. While we were making as much as the previous year, Google came back again to hit some of our sites with their EMD update. This is where the storm truly started. A hot air balloon full of shit hit the Fan!
For several months, we kept our expenses as is and continued to spend money on various projects. We kept our growth minded business mentality combined with an aggressive debt repayment program. Everything was going well until the tax guy knocked on our door. We knew we had to pay taxes this year as we were quite profitable, we just completely forget to budget it! Taxes + accounting fees + Fincon12 all in the same month. There was just not enough money left in the company to pay for everything.
At the beginning of 2012, we simply thought “aahhhh we knew it was coming…”. We thought that by continuing our business as is and keep working, we were going to go back to normal within 6 months. Then came the attack to our sites and reputation and we took it more seriously. This is when we started to build a plan to get out of this predicament.
A good thing about our previous business model is that no site was generating over 30% of our income by itself. We were already diversified in terms of income producing sites. We can say that roughly 6-7 sites generate 80% of our revenues. Therefore, we have several playgrounds to work with.
The problem is that the business model was quite similar as we had developed an important private advertiser network. This is when we started to think about revenue source diversification. We were already working on a book and we also started to monetize our newsletter. In July, we made over $2,000 with a single campaign.
We knew we were pretty good in the dividend investing niche. This is why we started to consolidate our efforts in this sector and multiplied the number of sites. We now have sites covering beginner investors’ needs, stock analysis, Canadian REITs and Canadian dividend stocks.
Most recently, we have decided to leave a few projects on the shelf and concentrate on what we have. It has become harder to do well everywhere so we had to concentrate on a few niches.
I’ve performed so much Adsense optimization that I was penalized by Google! Back in September 2012, we were able to grow our Adsense income to over $4,000 for the first time. Keep in mind that January and February 2012 were showing $2,042 & $2,505. You can appreciate the huge improvement we made in only 7 months! The problem is that Google didn’t see it that way and penalized some of our sites by deranking 70% of the search engine traffic we used to get on some websites. Those websites were obviously our biggest Adense earners. And this is how went down from $4,151 in September to $2,838 the following month. Since then, I’m back to hovering between $2,500 and $3,000 (besides a few peaks due to important mentions).
I shared with you that we are on an aggressive debt repayment plan since the beginning of 2012. We want to clear our corporate debt within the next three years and then be able to truly enjoy the benefits. In order to continue our debt repayment plan the way we planned it, we decided to cut our expenses.
We realized that we were overspending for the sake of growth. Like a bigger company, when times are good and money is flowing in, we started to spend more than we need to. We were creating content in places that don’t drive traffic and don’t generate income for now. This is silly. This is why we started to cut out expenses and save another $600/month. Our cost structure has now dropped below $4,000. We are now at $3,855 excluding debt repayment. The plan is to repay $3,000 per month.
2012 was a crazy ride. We worked harder than ever and didn’t generate any growth. That’s normal because our previous business model that was based on private advertising dropped so much that we had to find other ways to make money. It’s not that simple! Nonetheless, with all our efforts, we only suffered a drop of 5% of our gross income. So we are still showing over $100,000 in gross income and this now come from several different sources.
The other big difference is that we are now generating money from our own products. We have small ebooks generating between $200 and $300 per month along with our “flagship” product; Dividend Growth generating another $250-$300 per month on a steady basis. I think that selling our own products will definitely help us reaching a steady cash flow each month instead of hoping for a big deal.
2013 will be the continuity of 2012. This means that we are still working on evolving our business model. The biggest moves have been completed last year but we have now to tweak our modifications. We are trying different avenues and definitely affiliate products and our own services will be great addition.
I think we wasted too much time and energy focusing on Adsense last year. Adsense is great as it’s highly passive but the problem is that you have no control over it. Plus, Google has this weird habit of penalizing people for nothing. So we will keep Adsense in our revenue streams but we won’t focus on it anymore. I think that a good base of $3,000 per month is sufficient to help us grow with our other sources of income.
Our membership program will probably be the biggest challenge we will face. But after the success we had with our latest book, I think we are up for the challenge!Google+ Comments: 9 Read More
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